Thomson Reuters Posts Loss, $3 Bln Goodwill Charge

Thomson Reuters Corp reported a fourth-quarter loss on Thursday after taking a $3 billion non-cash goodwill impairment charge to account for the decline in its financial services business.

The one-time charge helped push the company into a loss attributable to common shareholders of $2.57 billion in the fourth quarter, compared with a profit of $224 million in the year-ago period. This was its first earnings report since James Smith took over as chief executive in December.

Thomson Reuters' business has suffered in the wake of the financial crisis, with customers in banking and finance laying off tens of thousands of employees and slashing costs. The global news and information provider's next generation flagship desktop product, Eikon, has also posted disappointing sales.

Revenue and earnings excluding the charge improved in the quarter. But the size of the goodwill impairment is an indication of the extent of the problems in the financial services business - formerly known as Markets - in the past year, which is reflected in a 30 percent decline in Thomson Reuters stock price. It also represents quick recognition of the problems by a largely new management team as it begins its repair effort in financial services.

"It reflects the fact that the world is a lot different and external market valuations are a lot different than they were in 2008," Smith said in an interview. "It also reflected a bit the fact that we haven't executed off our expectation. It's more about putting the past in the past and focusing on our future."

Thomson Reuters underwent a series of structural changes and management shakeups in 2011 to address lackluster performance in Markets and a slumping stock price. This resulted in the exit of then CEO Tom Glocer, who had helped engineer the acquisition of Reuters Group Plc by Canada's Thomson Corp in 2008.

Growth has been much stronger in Thomson's legacy businesses that cater to legal, tax and accounting firms, formerly known as the Professional division. Professional revenue grew 9 percent in the fourth quarter before currency changes to $1.5 billion, accounting for 42 percent of total revenue.

As of January, the company merged the two businesses and set up a new organizational structure that includes Legal, Tax & Accounting, Intellectual Property & Science, and Financial & Risk segments.

It reported a $50 million charge in the fourth quarter related to the reorganization of the former Markets business. It said that included severance costs at the corporate level as well as Markets. It did not give the total number of jobs cut.

Adjusted earnings per share, which excludes the goodwill charge, rose to 54 cents from 37 cents a year ago. After also backing out restructuring charges, earnings per share were 59 cents compared with analysts' average forecast of 56 cents, according to Thomson Reuters I/B/E/S which compiles brokerage estimates.

Thomson Reuters said it expects 2012 revenue to grow in the low single digits. Before the results came out, analysts were forecasting 2012 revenue growth of about 2 percent to $13.09 billion.

"The guidance is prudent, as it should be," said Claudio Aspesi, senior analyst at Sanford Bernstein. "My concern is that headwinds in financial services will be very hard because employment will continue to be under pressure."

"Financial markets and legal both will be under continued revenue pressure in 2012 and beyond. At some point the question of whether the cost structure is in line will have to be answered," he added.

ACTIVE USERS

Revenue from ongoing businesses rose 5 percent before currency changes to $3.4 billion in the fourth quarter, compared with analysts' average forecast of $3.3 billion.

The company said Eikon desktops now has 15,000 active users, up from 8,000 on September 30, 2011.

For the fourth quarter, underlying profit margin was 19.6 percent compared with 19.1 for the same period last year. The company expects its 2012 underlying profit margin to be in the range of 18 percent to 19 percent, citing higher depreciation and amortization expenses related to new products.

Describing recent progress in the business as "remarkable," Smith said, "I'm really encouraged by the way we are getting our arms around the issues."

Thomson Corp acquired control of Reuters Group Plc in 2008 for about $17.2 billion, a 40 percent premium to Reuters share price at the time. The $3 billion goodwill write-off represents 17 percent of the purchase price.

Volatility in the media business has resulted in other major write-offs in recent years following the acquisition of signature properties. Rupert Murdoch's News Corp paid $5.6 billion for Dow Jones, publisher of the Wall Street Journal, in 2007, and the following year took a $2.8 billion non-cash charge on the purchase.

As of the end of 2011, Thomson Reuters valued its goodwill at $15.9 billion, down from $18.9 billion at the end of 2010.

Thomson Reuters also said on Thursday it intended to sell three businesses: Tax & Accounting's Property Tax Services; Legal's Law School Publishing business; and Financial & Risk's eXimius business, which is part of the Retail Wealth Management organization. The three businesses combined had about $155 million of revenue in 2011.